When you invest in shares, there are two main opportunity costs to consider:
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Alternative Investment Opportunity Cost: This is the cost of not being able to invest your money in something else that could have potentially given you a higher return. For example, if you invest in shares, you can't use that money to buy a house or put it in a high-interest savings account. You're giving up the potential gains from other investments when choosing to invest in shares.
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Spendable Cash Opportunity Cost: By investing in shares, you're using your money to buy a piece of a company, which means you can't use that cash for personal expenses or emergencies. So, if you need cash for daily needs or unexpected costs, you might not have it readily available because it's tied up in the shares.
In simple terms, imagine you're choosing between buying shares and going on a vacation. If you pick shares, you can't spend that money on a nice holiday or other things you might need or want to buy with that cash. Also, you miss out on relaxing on a beach because you're hoping the share investment will grow in value like a plant, and maybe one day you can harvest its 'profits' instead.
